How does cryptocurrency influence traditional banking.pdf

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How does cryptocurrency influence traditional banking?
We always hear Bitcoin recently. Bitcoin was the first decentralized
cryptocurrency. Later on, a lot of other cryptocurrencies have been created. Some
people call cryptocurrency “the money of the future”. A cryptocurrency is a digital
currency that uses cryptography to secure its transections. It is designed to work as
a medium of exchange. Cryptocurrency such as Bitcoin is hot. Price were below
$800 recently, since then, it seems to have replaced gold as the “safe-haven”
default. Prices of gold is just where it was a years ago. Therefore, it is liquid.
However, it is not real and is unstable. “Bitcoin just shows you how much demand for
the money laundering there is in the world,” BlackRock CEO Fink said.
With cryptocurrency such as Bitcoin becoming more popular as medium of
exchange or a store of wealth. Consumers would make payments with
cryptocurrency and reduce their real cash holdings, so their cash will flow to the
commercial bank as deposit. As a result, commercial bank is no further require much
money supply from central bank since the commercial bank deposit is closely
approaching to zero. The demand and the deposit of central bank is shrinking, it lead
to an issue of whether the central bank could be able to conduct effective monetary
policy.
When the cryptocurrency reaches a certain size, it impacts on the real
economy. However, central bank lost their power to regulate on the prices of virtual
currency. Central bank could only regulate the currency liquidity to exert an indirect
effect. So, the effectiveness of monetary policy will be weakened. In addition, as
more transactions take place with electronically payment systems, monetary policy
statistic may become inaccurate. The policy could be inappropriate if it is created
based on a unreliable data.
To economists, the influence of cryptocurrency on traditional banking remains
ambiguous. According to
​
The Guardian,
​
European economists do not regard
cryptocurrency as a threat to financial stability. On the other hand, a nobel prize
winner Robert Shiller regard cryptocurrency as a resemblance of market bubbles
around two decades ago, the dotcom bubble. The views of economist varies due to
the growing usage of bitcoins and a forecast of how players of the traditional
banking system, central and commercial banks, are going cover the lost caused by
cryptocurrencies.
Currently, a digital currency insight medium
​
Brave New Coin
​
suggests that
cryptocurrency has the ability to ensure the transparency of donations; purchase
products within cryptocurrency based cafe such as the
​
Bumblebee Exchange
at
Toronto; and even pay tuitions to colleges such as the University of Nicosia for
instance.
If the market would increase its acceptance to cryptocurrencies, citizens
would begin to adapt to the new banking method. This new banking method would
further ensure the currency flow, a major consideration to customers of
cryptocurrencies, and decentralized the money supply. As a result, the economy as
a whole would be another giant step closer to laissez-faire. For the government,
however, would be another crises to resolve in the future when the bubble bursts
and requires government intervention.

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